Some perspective during gut-wrenching markets

The stock market is going through a grim period, with market declines that have rivaled those of any bear market since World War II (see the chart of bear markets in this blog post, and click on the chart to enlarge).

As the markets test the lows that they reached about a month ago, many investors are understandably dismayed. It seems there is little to no good news in sight, and the relentless, grinding market drops will never end.

We like to refer to the historical bear market chart because it is so helpful in providing perspective -- it reminds us that this is what happens in bear markets. How long it will continue is impossible to say, but it is important to understand that the current market swoon is not the first such situation in history, and as we have witnessed in past bear markets this one will also pass.

Larry Kudlow recently published an excellent piece entitled "Mustard Seeds," in which he noted a few pieces of positive data in important areas. It is worth a read, especially by those who are ready to conclude that nothing will ever be positive again, or at least not in their lifetime. As Larry references in his article and we note in the chart above on retail gasoline, there are some positives trends that are developing however minor they may seem at the moment.

Bear markets are gut-wrenching. However, an investing lifetime that spans several decades (as it does for most investors) inevitably encounters bear markets. It is important to keep perspective during such periods and to process all the data that is available, not just the data that is front-and-center in most media outlets.

For later posts dealing with the same subject, see also:

• "Invest like Mr. Howell" 05/18/2009.

• "If Rip Van Winkle took a one-year nap before September 15, 2008" 09/14/2009.

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